Year ended 31 December December 2012

Transcription

1 Press Release Beazley delivers an exceptional underwriting performance Dublin, 6 February 2014 Beazley plc results for the year ended 31 st December Profit before income tax of $313.3m (: $251.2m) Return on equity of 21 (: 19) Gross written premiums increased by 4 to $1,970.2m (: $1,895.9m) Combined ratio of 84 (: 91) Rate increase on renewal portfolio of 1 (: 3) Prior year reserve releases of $218.0m (: $126.0m) Net investment income of $43.3m (: $82.6m) Second interim dividend of 5.9p, taking total dividends for the year to 8.8p (: 8.3p) up 6, plus a special dividend of 16.1p (: 8.4p) Year ended Year ended 31 December 31 December movement Gross written premiums () 1, , Net written premiums () 1, , Profit before income tax () Earnings per share (pence) 33.6p 26.7p 26 Net assets per share (pence) 160.6p 147.5p 9 Net tangible assets per share (pence) 149.6p 133.4p 12 Dividend per share (pence) 8.8p 8.3p 6 Special dividend 16.1p 8.4p 92 Andrew Horton, Chief Executive Officer, said: Beazley delivered an exceptional underwriting performance in, reflected in the lowest combined ratio we have recorded since becoming a public company in It was a quiet year for catastrophe losses, which contributed to the strong reserve releases from short tail classes of business, but the business lines that are not exposed to catastrophes also performed excellently. Despite intensifying competition in some areas, we continue to identify attractive growth opportunities across the breadth of our well diversified portfolio. The strength of our underwriting performance gives us the financial flexibility to take advantage of these opportunities while still enhancing returns to shareholders through a special dividend and an increased regular dividend.

2 For further information, please contact: Beazley plc Martin Bride Tel: +353 (0) RLM Finsbury Guy Lamming/Sarah Roberts Tel: +44 (020) Note to editors: Beazley plc (BEZ.L), is the parent company of specialist insurance businesses with operations in Europe, the US, Asia and Australia. Beazley manages five Lloyd s syndicates and, in, underwrote gross premiums worldwide of $1,970.2 million. All Lloyd s syndicates are rated A by A.M. Best. Beazley s underwriters in the United States focus on writing a range of specialist insurance products. In the admitted market, coverage is provided by Beazley Insurance Company, Inc., an A.M. Best A rated carrier licensed in all 50 states. In the surplus lines market, coverage is provided by the Beazley syndicates at Lloyd s. Beazley is a market leader in many of its chosen lines, which include professional indemnity, property, marine, reinsurance, accident and life, and political risks and contingency business. For more information please go to:

3 Chairman s statement I am pleased to report that your company delivered an excellent performance in, achieving a return on average shareholders equity of 21 (: 19). This performance was underpinned by a combined ratio of 84 (: 91). A low incidence of catastrophe losses contributed to this, but strong underwriting results were not confined to catastrophe-exposed lines of business. Earnings per share rose to 52.4c and net tangible assets per share rose 14 to 248.3c. Beazley s share price during the year reflected the strong performance of the business, climbing 52. The board is pleased to announce a second interim dividend of 5.9p per ordinary share plus a special dividend of 16.1p per ordinary share. Together with the first interim dividend of 2.9p this takes the total dividends declared in to 24.9p per ordinary share (: first interim dividend of 2.7p, second interim dividend of 5.6p plus a special dividend of 8.4p, totalling 16.7p). It has been said that running a successful insurance business is easy to describe but hard to execute. Beazley s vision is to become, and be recognised as, the highest performing specialist insurer. In making progress towards this goal we are frequently evaluating and reappraising our business mix, while ensuring that the overall level of risk grows proportionately with the company s capital base. The strong performance of our marine division in is illustrative of our approach. Premium rates for war risks, including piracy, have declined sharply as attacks in vulnerable sea lanes, particularly off the Horn of Africa, have diminished. But we have simultaneously been able to increase our marine liabilities book substantially on the back of rate rises triggered in part by the Costa Concordia loss, the largest in marine history. With a well diversified book of business, which now also includes aviation risks as well as marine and energy risks, the team is able to make the adjustments needed to maintain profitability. This approach, replicated across the company, supports efficient capital management. The benefits of our diversified portfolio can be seen in the relative stability of the company s combined ratio through widely varying claims scenarios. Over the past five years, Beazley has achieved a group combined ratio averaging 90, including an underwriting profit in 2011, one of the worst years in history for insured natural catastrophes. Innovation is also a key element of our strategy. As existing lines of business mature and new competitors crowd in, a specialist insurer such as Beazley must constantly look for new ways to enhance the value it offers to brokers and clients. This sometimes takes the form of new products Beazley has been a pioneer in offering clients expert services in response to a claim, where such services are more relevant and valuable than a financial indemnity. But innovation also occurs daily in the interactions between underwriters and brokers to cover the more challenging risks. To innovate in this way requires a high level of underwriting expertise and experience, which Beazley unquestionably possesses. In my two years to date as chairman of the company I have been delighted to see the company s continuing success as a magnet for talent in our industry. This applies not only to underwriting but also to the other disciplines, including high quality claims service, in which brokers and clients expect us to excel. Beazley is fortunate to possess not only a seasoned senior management team, but considerable bench strength across its operations. The rewards of the company s leadership are aligned to the long term performance of the company through a long term incentive plan with demanding performance targets tied to the growth of net asset value per share. Dividend policy and capital management The board strategy is to grow the dividend by between 5 and 10 per year and this has always been achieved. In addition, our capital management strategy is to carry some surplus capital to enable us to take advantage of growth opportunities that may arise; this is further supported by our fully undrawn banking facility. Given our growth plans and profitability, we are targeting a surplus capital buffer in the range of To the extent that we have surplus capital substantially outside of this range, the board will consider means to return this capital to shareholders, as evidenced by the fact that we have paid special dividends in four of the last seven years.

4 Outlook Achieving profitable growth is not easy in the current insurance market and as we signalled at half year we see a number of markets in which we operate becoming more competitive. That said, we do see profitable opportunities for moderate premium growth within our existing risk appetite in the course of In the board s view, Beazley remains on track towards the achievement of its vision. Dennis Holt Chairman 6 February 2014

5 Chief executive s statement Beazley s businesses delivered an excellent result in, generating a profit before income tax of $313.3m (: $251.2m) on gross premiums of $1,970.2m (: $1,895.9m). Our combined ratio of 84 (: 91) is the best we have reported since becoming a public company at the end of While we were aided by a benign claims environment, this was also testament to a focus on underwriting profitability that has sustained Beazley s performance throughout the company s history. With a longstanding commitment to profitability first and growth second, we have nevertheless continued to identify attractive growth opportunities. Specialty lines, our largest division, grew net premiums by 7 to $708.0m, buoyed by rate rises of 3. Property, our second largest division, saw growth in net premiums of 12 and delivered a contribution to profits of $65.2m, the largest in the division s history. Property rates rose by 3 and, across the company, rates rose on average by 1. These two divisions account for the vast majority of business we underwrite locally in the United States, our largest market and one that is now home to 340 Beazley employees and the location of ten Beazley offices. We saw the growth of our locally underwritten US premiums accelerate in, increasing by 17 to $451.8m. Prior year reserve releases contributed $218.0m to our underwriting result (: $126.0m). A consistent approach to reserving has long been an important feature of our business model, enabling us to make prior year reserve releases as claims crystallise. Profitable growth in the current market is by no means plain sailing. At the half year, we identified increasingly competitive headwinds from a number of sources. In particular, there has been an influx of new capital from pension funds into the reinsurance market, which will continue to depress rates, particularly for peak zone US catastrophe cover. Our reinsurance division, representing 11 of our total gross premiums, saw rates on renewals fall by 3. With offices in Munich, Singapore and, most recently, Miami (serving cedants in Latin America) our reinsurance team is still able to grow by focusing increasingly on the development of non-us business. Our marine division continued to deliver very impressive underwriting results in in the face of stiff competition, particularly in the hull market, achieving a combined ratio of 72 (: 75). Much of our success as a company and particularly the consistency of our performance has derived from the careful balance of our risk portfolio, comprising lines of business that are not correlated. Not all lines will perform well in all years, as illustrated in by the contrasting fortunes of our political risks and contingency division and our life, accident & health division. The former had a good year, accounting for 7 of group premiums but almost 17 of group profits. By contrast, life, accident & health s combined ratio of 125 reflected challenging market conditions in Australia (to which we have responded with significant rate rises) and continuing uncertainty over the roll-out of the Affordable Care Act in the US, which depressed demand for the health and disability gap protection cover we offer to the employees of US companies through their employers. We continue to see growth potential in 2014 in this market as the regulatory environment stabilises. Claims activity The Atlantic hurricane season was the first since 1994 to end with no major hurricanes and, overall, our claims experience has been relatively light. Our focus on providing high quality claims service remains very strong, however, and we were delighted that this was recognised in with two awards for our handling of claims in the aftermath of superstorm Sandy in October. A landmark of a different kind occurred in late November, when our technology, media and business services team helped a client manage its first and our 1,000th data breach. Data breaches occur with high frequency and require a very specialised and multi-faceted response. Beazley is the only insurer to have established a dedicated business unit to help clients handle data breaches successfully an important factor in the huge success of our Beazley Breach Response product. Investment performance Government bond yields rose sharply in the US and Europe in, anticipating a reduction in the amount of quantitative easing by the US Federal Reserve. The rise in yields, the largest for several years, was detrimental to our investment portfolio and contributed to a reduction in our overall return, from 2 in to 1 in. Our alternative asset allocation contributed positively to the investment portfolio, with equity and credit funds performing especially well. During we made some changes to the management of our investment portfolio by changing our relationship with Falcon Money Management. This should enable us to achieve lower investment management fees in future periods. Risk management We continue to monitor closely the risks that could impact the group. Given the nature of our business, the key risks that impact financial performance arise from insurance activities. These include the potential for changes in the tort law environment that could affect multiple teams within our specialty lines division, as well as natural or man-made catastrophe losses impacting our short tail lines of business. Alongside these insurance risks, the success of the group depends on managing the risks to the execution of its strategy. The board continues to receive a suite of risk information to help it mitigate these and the other risks.

6 Growth opportunities We have a clear preference for developing organic growth opportunities but we would consider acquisition opportunities, on an exceptional basis. In we continued to plant the seeds of future growth, hiring talented individuals who in our judgement will be able to help us expand into new geographies or lines of business. Latin America has not historically been a major source of business for Beazley underwriters, but the rapid evolution of many of the region s insurance and reinsurance markets led us to reappraise opportunities in the region in and early. In July we opened an office in Miami to focus on the development of reinsurance business in Latin America, headed by Paul Felfle. And in December we announced the appointment of Ricardo Ortega as head of business development in Latin America, based in Rio de Janeiro. With significant infrastructure investments now under way in Brazil and elsewhere, construction and engineering risks present one area of opportunity among many. We continue to see substantial growth opportunities in Europe. In the course of, the European Union took further steps towards the adoption of a tighter regulatory regime for data breach notification that will result in the EU being far more like the United States in this respect, increasing the appeal of our market leading cover for this risk. And in May we welcomed Matthew Norris, one of the most experienced technology underwriters in the London market, to join our growing European team focused on small scale professional indemnity business. The insurance needs of small technology, media and consulting companies in Europe are evolving rapidly and we see significant growth opportunities in this sector, working closely with brokers. Our marine division also began to reap the benefit of recent senior level hires. In its first full year of trading, our aviation team, under the leadership of David Oates, wrote business worth $28.7m. Premiums for marine liability business, headed by Phil Sandle, rose from $14.7m to $25.9m. Our largest market is and will remain the United States. We write a large volume of predominantly large scale US risks from the Beazley box at Lloyd s, but we also made good headway in in building our smaller scale business written locally in the US. The head of our specialty lines division, Adrian Cox, relocated to Chicago in August, for a two year secondment, to become chair of the US Management Committee and oversee our US operation. Product innovation remains very important to us and to the brokers we do business with. In September our political violence team in London launched Beazley Flight, one of a new generation of insurance-based solutions that offer clients specialist response services in the event of a claim. We believe Beazley Flight to be the most comprehensive emergency evacuation cover currently on the market, providing expert advisory and evacuation service in a range of crisis scenarios. Of course the Lloyd s market itself is well known as a source of innovation in insurance, so it was gratifying in May to be able to participate in an initiative that stands to increase the attractiveness of Lloyd s to large scale buyers of construction and engineering insurance. Beazley is one of four Lloyd s insurers to form the Construction Consortium at Lloyd s. Through the consortium we will be able to provide capacity for the largest projects, up to a maximum of $166m per risk, offering an alternative to the largest non-lloyd s insurers. Broker relations Great products and skilled underwriters are necessary but not sufficient conditions for success in our business. Strong broker relationships are also critical. We work with brokers at multiple levels and are constantly looking for ways to improve our service and enhance the value we provide. Unlike many insurers, we make an effort to include our claims professionals in many of our broker meetings as we believe that the knowledge and skills of our claims staff are important differentiators for Beazley. Responsibility for managing our strategic relationships with key broking firms falls to our broker relations team, headed by Dan Jones. In the course of, we have continued to see efforts by brokers to streamline the placement process and reduce the number of carriers they routinely do business with. We are happy to participate on broker panels and in other arrangements that do not curtail our discretion in writing, or declining, individual risks. Solvency II After very extensive deliberations, Solvency II is now scheduled to come into force on 1 January As described in earlier communications, we have invested heavily in preparing for the new regime and are confident we will be ready. This has been a year of wide ranging achievements at Beazley and I am very grateful to all of our employees, working in often challenging markets, who have made these achievements possible. But the culture and shared values that bind our people together are in many ways even more important than individual accomplishments, although harder to describe. *** Every two years, we have a valuable opportunity in the form of the Great Place to Work survey to test perceptions in this area. In, 87 of our people completed the survey. According to the definition adopted by the survey organisers we were already a great place to work, with a score in 2011 of 76. But this increased sharply last year, with 83 of respondents agreeing that Beazley was a great place to work.

7 I believe that this measure, which we have included as one of our key performance indicators, is intimately related to our financial success as measured by the other key performance indicators. A specialist insurer such as Beazley relies heavily on the skills and versatility of its people to succeed; and a business that is seen so positively by its people enjoys a major competitive advantage. Andrew Horton Chief executive 6 February 2014

8 Financial review Statement of profit or loss Movement Gross premiums written 1, , Net premiums written 1, , Net earned premiums 1, , Net investment income (48) Other income Revenue 1, , Net insurance claims (8) Acquisition and administrative expenses Foreign exchange (gain)/loss 3.0 (11.0) Expenses 1, , Share of loss of associates (0.3) (0.5) Finance costs (15.2) (3.2) Profit before tax Income tax (expense)/credit (49.3) (36.6) 35 Profit after tax Claims ratio Expense ratio Combined ratio Rate increase 1 3 Investment return Premiums Gross premiums written have increased by 4 in to $1,970.2m. Rates on renewal business on average increased by 1 across the portfolio, with more significant increases in property of 3 and specialty lines of 3. We have continued to adjust our underwriting appetite in areas where competition is most intense. Our portfolio by business division has remained broadly unchanged from. We continue to operate a diversified portfolio by type of business and geographical location, and have grown our business across five of the six divisions during. Premium retention rates Retention of business from existing brokers and clients is a key feature of Beazley s strategy. It enables us to maintain a deep understanding of our clients businesses and requirements, affording greater insight into the risks involved in each policy we write and enabling us to price risk most accurately to achieve profit. The table below shows our retention rates by division compared to. Retention rates* Life, accident & health Marine Political risks & contingency Property Reinsurance Specialty lines Overall * Based on premiums due for renewal in each calendar year.

9 Rating environment Premium rates charged for renewal business increased by 1 during across the portfolio (: an increase of 3). The most notable rate increases were seen in our specialty lines division where they have been at 3 for the last two years; prior to this rate increases had not been seen for six years. Increases were the most significant in professional indemnity for architects and engineers (6), management liability (6) and treaty (3). Other significant rate increases were seen within our property division (3), with the most significant being in homeowners (6) and US commercial property (6). Rate change on renewals in all other divisions were down by 1 in political risks & contingency and life, accident & health, 3 in reinsurance and 5 in marine. Cumulative renewal rate changes since 2001 below: Life, accident & health Marine Political risks & contingency Property Reinsurance Specialty lines All divisions Reinsurance purchased Reinsurance is purchased for a number of reasons: to mitigate the impact of catastrophes such as hurricanes; to enable the group to write large or lead lines on risks we underwrite; and to manage capital to lower levels. The amount the group spent on reinsurance in was $293.7m (: $353.2m). The group as a whole is a net buyer of reinsurance and has benefited from falling premium rates on renewals. In addition, specific reductions in reinsurance spend were seen in the property division where we were able to achieve more efficiency in our reinsurance buying through the consolidation of parts of the property and catastrophe programme. Combined ratio The combined ratio of an insurance company is a measure of its operating performance and represents the ratio of its total costs (including claims and expenses) to total net earned premium. A combined ratio under 100 indicates an underwriting profit. Consistent delivery of operating performance across the market cycle is clearly a key objective for an insurer. Beazley s combined ratio has decreased in to 84 (: 91). Our combined ratio in is lower than the historic average due to relatively low levels of claims activity with no significant catastrophes or adverse development on prior years claims. It is worth pointing out that the calculation of the combined ratio for Beazley includes all claims and other costs to the group but excludes foreign exchange gains or losses. We believe this represents the most transparent and useful measure of operating performance as it ensures that all of the costs of being in business are captured, whether directly linked to underwriting activity or not. Claims Overall, claims have developed favourably during, with claims notifications at normalised levels. We have only moderate exposure to the floods in Europe during May and the hailstorms in Germany, as well as the floods in Calgary in July. Reserve releases Beazley has a consistent reserving philosophy, with initial reserves being set to include risk margins that may be released over time as and when any uncertainty reduces. Historically these margins have given rise to held reserves within the range 5-10 above the actuarial estimates which themselves include some margin for uncertainty. The margin held above the actuarial estimate was 8.2 at the end of (: 6.9). Reserve monitoring is performed at a quarterly peer review, which involves a challenge process contrasting the claims reserves of underwriters and claim managers, who make detailed claim-by-claim assessments, and the actuarial team, who provide statistical analysis. This process allows early identification of areas where claims reserves may need adjustment. During we were able to make the following prior year reserve adjustments across divisions, with the overall net impact being a release to the group.

10 Life, accident & health (4.6) 0.5 Marine Political risks & contingency Property Reinsurance Specialty lines Total Releases as a percentage of net earned premium The increase in reserve releases was driven by our property and reinsurance divisions which benefitted from the benign natural catastrophe environment in, and favourable development on our reserves set up following the 2010 and 2011 natural catastrophes. Reserve releases decreased in specialty lines in, which was in line with our expectations. The releases came mainly from the 2003 through 2006 underwriting years as these years continued their exceptional development. The political risks and contingency reserve releases were driven by continued favourable development on our financial crisis-exposed underwriting years, while our Marine division benefitted from continued strong performance on all years. Acquisition costs and administrative expenses Business acquisition costs and administrative expenses increased during to $619.3 from $563.5 in. The breakdown of these costs is shown below: Brokerage costs Other acquisition costs Total acquisition costs Administrative expenses Total acquisition costs and administrative expenses Brokerage costs are the premium commissions paid to insurance intermediaries for providing business. As a percentage of net earned premium they remain between 21 and 22. Brokerage costs are deferred and expensed over the life of the associated premiums in accordance with accounting standards. Other acquisition costs comprise costs that have been identified as being directly related to underwriting activity (e.g. underwriters salaries and Lloyd s box rental). These costs are also deferred in line with premium earning patterns. Administrative expenses comprise primarily personnel costs, IT costs, facilities costs, Lloyd s central costs and other support costs. These increased in due to performance linked remuneration and the write off of renewal rights assets relating to the life, accident & health and specialty lines divisions. Investment performance Investment income for the year ended 31 December was $43.3m, or an annualised return of 1.0, compared with $82.6m or 2.0 over the same period in. Lower returns, compared with the previous year, were driven by a rise in bond yields in the US, as the federal reserve indicated early in the year that it would taper its quantitative easing programme, finally confirming in December that the tapering would start in In the UK yields rose, as the economy recovered, and in Europe yields followed the lead set by the US. Our core portfolio returned 0.5 in. Government bonds, especially in the US, performed poorly (the comparable BoAML 1-5 year government index produced a negative return in ), but the credit component of our portfolio performed well, as credit spreads narrowed significantly in. At year end AAA/AA government and agency bonds remained approximately 47 of the overall portfolio, while cash and cash equivalents and credit assets comprised 41. The main challenge to our investment performance in was US federal reserve policy, and we expect that, if the US economy maintains its upward trend, federal policy and a rising yield environment will continue to make investment conditions challenging for managers of fixed income portfolios in 2014.

11 The remaining 12 of our portfolio continues to be held in a diversified portfolio of capital growth assets, which returned 4.7 in. This portfolio continues to be managed by our associated company, Falcon Money Management Limited. Duration of the fixed income portfolio at year end was 1.8 years (: 1.9 years) with a yield to maturity of 1.4 (: 1.0). We are changing our relationship with Falcon Money Management. In 2014, they will cease managing our core portfolio but will be actively involved in the management of our capital growth assets. This should enable us to lower investment management fees in future periods. The table below details the breakdown of our portfolio by asset class: 31 Dec 31 Dec Cash and cash equivalents Fixed income: sovereign and supranational 2, , Investment grade credit 1, , Other credit Core portfolio 3, , Capital growth assets Total 4, , Comparison of return by major asset class: 31 Dec 31 Dec Core portfolio Capital growth assets Overall return The funds managed by the Beazley group have grown by 2 in, with financial assets at fair value and cash and cash equivalents of $4,426.3m at the end of the year (: $4,321.9m). The chart above shows the increase in our group funds since Tax Beazley is liable to corporation tax in a number of jurisdictions, notably the UK and Ireland. Our effective tax rate is thus a composite tax rate between the Irish and UK tax rates. In, it was announced that the UK corporation tax rate will be reduced to 20 by This rate reduction in the UK tax rate has been applied to our UK deferred tax liability brought forward. This reduction in our deferred tax liability has offset our current year tax charge to create an effective tax rate of 15.7 for the year.

12 Summary statement of financial position Movement Intangible assets (20) Reinsurance assets 1, ,187.3 (1) Insurance receivables Other assets Financial assets at fair value and cash and cash equivalents 4, , Total assets 6, , Insurance liabilities 4, , Financial liabilities (13) Other liabilities (12) Total liabilities 5, , Net assets 1, , Net assets per share (cents) 266.5c 240.5c 11 Net tangible assets per share (cents) 248.3c 217.5c 14 Net assets per share (pence) 160.6p 147.5p 9 Net tangible assets per share (pence) 149.6p 133.4p 12 Number of shares* 502.2m 500.9m - * Excludes shares held in the employee share trust and treasury shares. ** The restatement is in respect of the change to IAS 19. Intangible assets Intangible assets consist of goodwill on acquisitions of $62.0m, purchased syndicate capacity of $10.7m, US admitted licences of $9.3m and capitalised expenditure on IT projects of $9.6m. During the year renewal rights in relation to specific business within the specialty lines and life, accident and health divisions have been fully impaired by $11.5m; therefore at 31 December there is no carrying value remaining in respect of renewal rights within intangible assets. In addition, amortisation on IT development costs and renewal rights has contributed to the reduction in the group s intangible assets. Reinsurance assets Reinsurance assets represent recoveries from reinsurers in respect of incurred claims of $978.4m, and the unearned reinsurance premiums reserve of $199.8m. The reinsurance receivables from reinsurers are split between recoveries on claims paid or notified of $253.7m and an actuarial estimate of recoveries on claims that have not yet been reported of $724.7m. The group s exposure to reinsurers is managed through: minimising risk through selection of reinsurers who meet strict financial criteria (eg minimum net assets, minimum A rating by S&P). These criteria vary by type of business (short vs medium-tail); timely calculation and issuance of reinsurance collection notes from our ceded reinsurance team; and regular monitoring of the outstanding debtor position by our reinsurance security committee and credit control committees. We continue to provide against impairment of reinsurance recoveries, and at the end of our provision had reduced to $14.5m (: $18.0m) in respect of reinsurance recoveries, following a partial recovery during the year in relation to Lehman Re. Insurance receivables Insurance receivables are amounts receivable from brokers in respect of premiums written. The balance at 31 December was $617.7m, an increase of 7 over ($578.0m). We continue to outsource the collection of our Lloyd s broker premium balances to Randall and Quilter Investment Holdings plc, which operates within the Lloyd s market as a specialist credit controller.

13 Other assets Other assets are analysed separately in the notes to the accounts. The largest items included comprise: financial assets at fair value of $4,043.6m; cash and cash equivalents of $382.7m; deferred acquisition costs of $206.0m; profit commissions of $11.5m and other balances of $17.0m receivable from syndicate 623; and deferred tax assets available for use against future taxes payable of $8.7m. Insurance liabilities Insurance liabilities of $4,577.3m consist of two main elements, being the unearned premium reserve (UPR) and gross insurance claims liabilities. Our UPR has increased by 7 to $956.8m. The majority of the UPR balance relates to current year premiums that have been deferred and will be earned in future periods. Current indicators are that this business is profitable. Gross insurance claims reserves are made up of claims which have been notified to us but not yet paid and an estimate of claims incurred but not yet reported (IBNR). These are estimated as part of the quarterly reserving process involving the underwriters and group actuary. Gross insurance claims reserves have increased by 1 to $3,620.5m. Financial liabilities Financial liabilities comprise borrowings and derivative financial liabilities. The group utilises three long-term debt facilities: In 2006 we raised 150m of lower tier 2 unsecured fixed rate debt that is payable in 2026 and callable in In we bought back an additional 26.2m (: 47.3m). The initial interest rate payable is 7.25 and the nominal value of this debt as at 31 December is 76.5m (: 103m); A US$18m subordinated debt facility raised in This loan is also unsecured and interest is payable at the US interbank offered rate (LIBOR) plus These subordinated notes are due in 2034 and have been callable at the group s option since 2009; and During September we issued a sterling denominated retail bond under a 250,000,000 euro medium term note programme which raised 75m for the group and are due in This diversified the source and maturity profile of the group s debt financing. A syndicated short-term banking facility led by Lloyds Banking Group Plc provides potential borrowings up to $225m. Under the facility $225m may be drawn as letters of credit to support underwriting at Lloyd s. Of this, $175m may be advanced as cash under a revolving facility. The cost of the facility is based on a commitment fee of 0.6 per annum and any amounts drawn are charged at a margin of 1.75 per annum. The cash element of the facility will last for three years, expiring on 31 December 2016, whilst letters of credit issued under the facility can be used to provide support for the, 2014 and 2015 underwriting years. The facility is currently unutilised. Capital Structure Beazley has a number of requirements for capital at a group and subsidiary level. Capital is primarily required to support underwriting at Lloyd s and in the US and is subject to prudential regulation by local regulators (PRA, FCA, Lloyd s, Central Bank of Ireland, and the US state level supervisors). Beazley is subject to the capital adequacy requirements of the European Union (EU) Insurance Groups Directive (IGD). We comply with all IGD requirements. Further capital requirements come from rating agencies who provide ratings for Beazley Insurance Company Inc. We aim to manage our capital levels to obtain the ratings necessary to trade with our preferred client base. Beazley holds a level of capital over and above its regulatory requirements. The amount of surplus capital held is considered on an ongoing basis in light of the current regulatory framework, opportunities for organic or acquisitive growth and a desire to maximise returns for investors. The group actively seeks to manage its capital structure and continued to reduce its cost of debt in. Our preferred use of capital is to deploy it on opportunities to underwrite profitably. However there may be times in the cycle when the group will generate excess capital and not have the opportunity to deploy it. At such points in time the board will consider returning capital to shareholders. In Beazley acquired 5.0m of its own shares. These were acquired at an average price of 230p and the cost to the group was $17.7m. Our funding comes from a mixture of our own equity of $1,338.7m alongside 76.5m of tier 2 subordinated debt, $18.0m subordinated long-term debt, a 75m retail bond and an undrawn banking facility of $225.0m.

14 The following table sets out the group s sources and uses of capital: Sources of funds Shareholders funds 1, ,204.5 Tier 2 subordinated debt Retail bond Long-term subordinated debt Uses of funds 1, ,511.1 Lloyd s underwriting Capital for US insurance company , Surplus Unavailable surplus* (150.8) (145.0) Fixed and intangible assets (97.6) (122.1) Available surplus Unutilised banking facility * Unavailable surplus primarily represents profits earned that have not yet been transferred from the Lloyd s syndicates. The cash transfers occur half-yearly in arrears and are reflected as unavailable until the cash is received into Beazley corporate accounts. In addition certain items other than fixed and intangible assets such as deferred tax assets are not immediately realisable as cash and have also accordingly been reflected as unavailable surplus. Individual capital assessment The group is required to produce an individual capital assessment (ICA) which sets out the amount of capital that is required to reflect the risks contained within the business. Lloyd s reviews this assessment to ensure that ICAs are consistent across the market. The current capital assessment has been established using our Solvency II internal model which has been run within the ICA regime as prescribed by Lloyd s. In order to determine the capital assessment, we have made significant investments in both models and process: we use sophisticated mathematical models that reflect the key risks in the business allowing for probability of occurrence, impact if they do occur, and interaction between risk types. A key focus of these models is to understand the risk posed to individual teams, and to the business as a whole, of a possible deterioration in the underwriting cycle; and the internal model process is embedded so that the teams can see the direct and objective link between underwriting decisions and the capital allocated to that team. This gives a consistent and comprehensive picture of the risk reward profile of the business and allows teams to focus on strategies that improve return on capital. The increase in our funds at Lloyd s from 558.0m to 563.0m is in proportion to the increase in business planned and the changes in the economic conditions. These numbers in US dollars are $935.4m and $876.0m for 2014 and respectively, which have been translated at the spot exchange rate at reporting dates. Solvency II Beazley has set two guiding principles for Solvency II, namely: to develop a framework that can be used to inform management and assist with business decision making; and to hold an appropriate and efficient level of capital for the agreed risk appetite through risk identification and mitigation. During, Beazley has continued to embed the principles of Solvency II and the use of our internal model in our business. As well as providing the basis for Lloyd s capital setting, our internal model is used extensively to inform risk management, capital allocation and decision making both on a routine and an ad hoc basis. In December, Lloyd s confirmed that it assesses us as continuing to meet the principles of Solvency II as currently drafted. The Solvency II programme continues to oversee the development of our capability and engagement with regulators as they complete their assessment of our model and our overall readiness for Solvency II. The Central Bank of Ireland has continued to progress its pre-application review of our model which will be used for both individual and group capital setting purposes.

15 Following the provisional agreement which has been reached between the European Parliament, the European Commission and European Council on the Omnibus II Directive, we now look forward with a greater degree of certainty to the recently revised implementation date for Solvency II of 1 January The European Insurance and Occupational Pensions Authority s guidelines for the preparation of Solvency II provide for a lead in to implementation over the next two years. The work which we have already done in our programme to date leaves us well placed to respond to this final phase of Solvency II preparation. Group structure The group operates across both Lloyd s and the US through a variety of legal entities and structures. The main entities within the legal entity structure are as follows: Beazley plc group holding company and investment vehicle, quoted on the London Stock Exchange; Beazley Underwriting Limited corporate member at Lloyd s writing business through syndicates 2623, 3622 and 3623; Beazley Furlonge Limited managing agency for the group s five syndicates (623, 2623, 3622, 3623 and 6107); Beazley Re Limited reinsurance company that accepts reinsurance premium ceded by the corporate member, Beazley Underwriting Limited; Syndicate 2623 corporate body regulated by Lloyd s through which the group underwrites its general insurance business excluding accident and life. Business is written in parallel with syndicate 623; Syndicate 623 corporate body regulated by Lloyd s which has its capital supplied by third-party names; Syndicate 6107 special purpose syndicate writing reinsurance business on behalf of third-party names; Syndicate 3622 corporate body regulated by Lloyd s through which the group underwrites its life insurance and reinsurance business; Syndicate 3623 corporate body regulated by Lloyd s through which the group underwrites its personal accident and BICI reinsurance business; Beazley Insurance Company, Inc. (BICI) insurance company regulated in the US. Licensed to write insurance business in all 50 states; and Beazley USA Services Inc. (BUSA) managing general agent based in Farmington, Connecticut. Underwrites business on behalf of Beazley syndicates and BICI.

16 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER Gross premiums written 1, ,895.9 Written premiums ceded to reinsurers (293.7) (353.2) Net premiums written 1, ,542.7 Change in gross provision for unearned premiums (64.2) (82.5) Reinsurer s share of change in the provision for unearned premiums (21.8) 18.3 Change in net provision for unearned premiums (86.0) (64.2) Net earned premiums 1, ,478.5 Net investment income Other income Revenue 1, ,585.8 Insurance claims Insurance claims recoverable from reinsurers (158.0) (124.4) Net insurance claims Expenses for the acquisition of insurance contracts Administrative expenses Foreign exchange loss/(gain) 3.0 (11.0) Operating expenses Expenses 1, ,330.9 Share of loss in associates (0.3) (0.5) Results of operating activities Finance costs (15.2) (3.2) Profit before income tax Income tax expense (49.3) (36.6) Profit for the year attributable to equity shareholders Earnings per share (cents per share): Basic Diluted Earnings per share (pence per share): Basic Diluted

17 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Group (restated)* Profit for the year attributable to equity shareholders Other comprehensive income Items that will never be reclassified to profit or loss: Loss on remeasurement of retirement benefit obligations (3.1) (1.8) Items that may be reclassified subsequently to profit or loss: Foreign exchange translation differences Total other comprehensive income 0.5 Total comprehensive income recognised * The restatement is in respect of the changes to IAS 19. For further information see note 1. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Company Profit for the year attributable to equity shareholders Total comprehensive income recognised

18 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER Group Share capital Share premium Foreign currency translation reserve Retained Other earnings reserves (restated)* Total Balance at 1 January (88.5) (50.1) 1, ,065.6 Total comprehensive income recognised Dividends paid (65.1) (65.1) Issue of shares (0.2) 1.6 Equity settled share based payments Acquisition of own shares in trust (25.1) (25.1) Reclassification of reserves 9.3 (9.7) 0.4 Cancellation of treasury shares (1.4) 30.1 (28.7) Balance at 31 December (86.2) (42.6) 1, ,204.5 Total comprehensive income recognised Dividends paid (129.9) (129.9) Equity settled share based payments 19.1 (2.1) 17.0 Acquisition of own shares in trust (17.7) (17.7) Transfer of shares to employees 3.4 (2.6) 0.8 Balance at 31 December (83.1) (37.8) 1, ,338.7 * The restatement is in respect of the changes to IAS 19. For further information see note 1.

19 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER Company Share capital Share premium Foreign currency translation reserve Other reserves Retained earnings Total Balance at 1 January (35.9) (59.3) Total comprehensive income recognised Dividends paid (65.1) (65.1) Issue of shares (0.2) 1.6 Equity settled share based payments Acquisition of own shares in trust (25.1) (25.1) Reclassification of reserves 9.3 (9.7) 0.4 Cancellation of treasury shares (1.4) 30.1 (28.7) Balance at 31 December (35.9) (51.8) Total comprehensive income recognised Dividends paid (129.9) (129.9) Equity settled share based payments 19.1 (2.1) 17.0 Acquisition of own shares in trust (17.7) (17.7) Transfer of shares to employees 3.4 (2.6) 0.8 Balance at 31 December (35.9) (47.0)

20 STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER Assets Group Company Group (restated)* Company Intangible assets Plant and equipment Investment in subsidiaries Investment in associates Deferred acquisition costs Deferred tax asset Reinsurance assets 1, ,187.3 Financial assets at fair value** 4, ,005.4 Insurance receivables Current income tax asset 1.2 Other receivables Cash and cash equivalents** Total assets 6, , Equity Share capital Share premium Foreign currency translation reserve (83.1) (35.9) (86.2) (35.9) Other reserves (37.8) (47.0) (42.6) (51.8) Retained earnings* 1, , Total equity 1, Liabilities Insurance liabilities 4, Financial liabilities Retirement benefit liability* Deferred tax liabilities Current income tax liability Other payables Total liabilities 5, , Total equity and liabilities 6, , * The restatement is in respect of the changes to IAS 19. For further information see note 1. ** Deposits to the value of $307.3m (: $320.0m) managed centrally by Lloyd s are now included in financial assets and no longer classified as cash and cash equivalents.

21 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER Group Company Group Company Cash flow from operating activities Profit before income tax Adjustments for: Amortisation of intangibles Equity settled share based compensation Net fair value losses/(gains) on financial assets 15.0 (17.3) Loss in associate Depreciation of plant and equipment Impairment of reinsurance assets (written back)/recognised (3.5) 2.3 Impairment loss recognised on intangible assets 11.5 Impairment loss recognised on investment in associates Increase/(decrease) in insurance and other liabilities (29.0) (Increase)/decrease in insurance, reinsurance and other receivables (36.4) 12.7 (21.5) (61.9) Increase in deferred acquisition costs (21.0) (25.3) Financial income (68.7) (77.0) Financial expense Profit on debt buyback (2.1) (12.9) Income tax paid (46.4) (22.7) Net cash from/(used in) operating activities (33.3) Cash flow from investing activities Purchase of plant and equipment (1.5) (2.6) (0.3) Expenditure on software development (5.1) (5.8) Purchase of investments* (3,079.5) (4,668.1) Proceeds from sale of investments 3, ,267.7 Investment in associate (0.1) (1.6) Interest and dividends received Net cash from/(used in) investing activities 8.8 (333.4) (0.3) Cash flow from financing activities Proceeds from issue of shares Acquisition of own shares in trust (17.7) (17.7) (25.1) (25.1) Proceeds from issue of debt Repayment of borrowings (39.5) (66.7) Interest paid (13.5) (6.7) (14.3) Dividends paid (129.9) (129.9) (65.1) (65.1) Net cash (used in)/from financing activities (200.6) (154.3) (48.6) 32.4 Net increase/(decrease) in cash and cash equivalents 61.7 (0.2) (100.9) (1.2) Cash and cash equivalents at beginning of year* Effect of exchange rate changes on cash and cash equivalents (1.8) Cash and cash equivalents at end of year* * Deposits to the value of $307.3m (: $320.0m) managed centrally by Lloyd s are now included in financial assets and no longer classified as cash and cash equivalents.